Global Wheat Supplies Are Tighter Than What a First Glance Seems to IndicateThu, 20 Feb 2014 21:00:11 CST
Shawn Campbell, U.S. Wheat Associates Assistant Director in theirWest Coast Office offers the following analysis about global wheat production and supplies as of mid February, 2014:
"Today, a quick glance at world wheat supply and demand might indicate that supplies are abundant, prices are trending down and the world's importers can be somewhat relaxed about meeting their near-term needs. However, well-informed buyers can see that the real picture of today's wheat market has more depth than the snapshot reveals with potential impact on import strategies.
"No doubt, the macro supply numbers are large and impressive. In its February WASDE report (see story above), USDA places global wheat supplies for the 2013/14 marketing year at 888.1 MMT, including record total wheat production of 711.9 MMT.
"Looking deeper, though, beginning stocks in the six traditional wheat-exporting regions are on a four-year trend down, from 84.0 MMT in 2009/10 to 53.0 MMT in 2013/14. That is the lowest carry-in for major exporters since 2008/09, the year following the supply crisis of 2007/08. World wheat use, on the other hand, is trending up. USDA estimated that the world will consume a record 696.6 MMT of wheat and world wheat trade will reach a record 159.4 MMT. Not surprisingly, global stocks-to-use ratios are also falling, from 31 percent in 2008/09 to 26 percent projected for this marketing year.
"Following is an overview of supply and demand situations in other major exporters that add detail to the supply and demand picture.
"Russian wheat production bounced back from a drought in 2012/13, reaching 52.1 MMT, up 38 percent compared to last year and the fourth largest crop since the dissolution of the Soviet Union. However, heavy rainfall during harvest resulted in a crop with lower protein and weaker gluten than normal. Russian farmers responded by holding back their better quality supplies in anticipation of higher prices. In turn, higher prices later in the year affected Russian wheat's competitive position on the world market. USDA's first estimate of Russian wheat exports in July was 17.0 MMT. The estimate is currently at 16.5 MMT.
"Ukraine's wheat situation is similar. While estimated production of 22.3 MMT is up from last year, quality suffered with harvest rains. In addition to quality issues, farmers are choosing to plant corn (maize) over wheat. High winterkill in winter wheat and the greater profit potential of corn is spurring the increase in corn planted area and production the past three years. In fact, Ukraine has produced more corn than wheat for the past three years and exported more corn than wheat for the past four years.
"USDA estimates wheat production in the European Union (EU) at 142.9 MMT, the third largest crop ever, and expects exports to reach a record 27.5 MMT. What the numbers do not show is that a large part of the production increase is taking place in Eastern Europe, a region noted for growing lower quality wheat. EU feed wheat usage has been declining, replaced by higher corn production and increasing corn imports from Ukraine. This forces countries like Romania to find other markets for their increasing wheat supplies, creating new competition for Russia and France in North Africa and the Middle East.
"France itself is not immune to quality challenges. News outlets reported French farm groups are voicing concerns over wheat varieties bred more for yield than quality. In addition, a cold wet spring in 2013 resulted in a crop with below-average protein and above-average moisture; prices had to come down before that wheat would move to market. Moreover, just a few weeks ago, Egypt, the world's largest wheat importer, lowered its moisture specification from 13.5 to 13.0 percent.
That new requirement will likely exclude higher-moisture French wheat from the Egyptian market.
"Logistical issues have pushed availability of Canadian wheat well into the future (see the Jan. 23 Wheat Letter) in part because the spring wheat crop is so large. There are similar, though less disruptive, logistical issues in the United States. U.S. exporters are bidding and delivering wheat reliably, but farmers in the northern United States have reacted to a very large basis by storing much of their wheat up country. This affects another issue: exportable supplies of high protein spring wheat.
"The average protein levels for Canadian Western Red Spring (CWRS) and U.S. hard red spring (HRS) classes are an entire percentage point lower than last year. This has resulted in the highest premium for 14.0 percent over 13.0 percent protein since 2010/11. Large carry-over stocks of high protein HRS and record CWRS production have kept the premium in check. If next year's HRS and CWRS protein levels are lower than average again, the looming shortage of high protein wheat could be a big challenge for the world's millers and bakers.
"Moving to the Southern Hemisphere, Argentina's wheat farmers have little economic incentive to grow more wheat because of disruptive government policies. And, for the second year in a row, Argentina had a poor crop and Brazil will need to source much of its bread wheat from other sources (including a reliable supplier to their north).
"Australia has also harvested its third largest crop ever at 26.5 MMT, but supplies of the higher protein wheat classes, Australian Hard and Australian Prime Hard, likely will be limited. Farmers in Western Australia, South Australia and Victoria are reaping bumper crops, but a drought has restricted supplies in Queensland and New South Wales. The drought did help raise wheat protein levels but also cut short supplies of grass and feed grains for the majority of Australia's cattle herd. The result has been high protein wheat moving away from the export market into domestic feed channels.
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